ROCHESTER — Brittany D. of Rochester has been taking stock of how her life will change once she begins repayment on her federal student loans.
It will be considerable.
After a three-year hiatus, Brittany will begin paying $450 a month to pay off a $80,000 federal loan debt.
The monthly bill will mean, she says, cutting back on her retirement (she plans on putting in only 2% of her pay, down from 9%).
Brittany also owns a 13-year-old clunker with 200,000 miles on it and worries how she is going to replace it, since saving for a new or used car won’t be possible given the loss of take-home pay. Taking out a car loan would make a tight budget even tighter.
Her husband is also paying off student loans. And the financial challenges they face is one reason the couple have decided not to have children. “It’s simply not affordable.”
Brittany, an IT analyst, has a master’s degree after graduating from Rochester Community and Technical College, Winona State University and Saint Mary’s University.
She requested that her full name not be used to avoid the public stigma attached to the student debt issue. But she agreed to be interviewed by the Post Bulletin to highlight the personal challenges her family is facing, as well as to highlight what she considers the failings of the current student loan system, in particular the inability to access bankruptcy protection.
“It’s extremely anxiety provoking,” Brittany said.
“The most important and critical information on student loans lies in the exorbitant interest rates, the lack of bankruptcy rights and their overall impact on the economy,” Brittany said.
More than 800,000 Minnesotans have a federal student loan debt estimated at $28 billion combined. To put that figure into perspective, consider that Minnesota’s state budget is $39 billion. Many Minnesotans also hold state and private loans, pumping up the Minnesota student loan debt loan even higher — to $32 billion.
The pandemic-era pause on federal student loans ended this month, leaving as many as 40 million Americans on the hook for a new monthly bill they haven’t needed to pay in three years.
How big a drag this will be on the economy is an open debate. Many economists think that while the hit to the economy could be substantial, it will not be so big as to plunge the economy into recession.
Goldman Sachs analysts expect renewed student loan payments to cost households about $70 billion per year. That would mean a 0.8 percentage point subtraction from consumer spending growth in the fourth quarter, helping to slow it to 1.4%, according to the New York Times.
Borrowers’ hopes that thousands of dollars in debt would be forgiven were crushed when the U.S. Supreme Court struck down President Joe Biden’s loan forgiveness program last summer.
Many view the idea of having to pay back loans as simple common sense. It’s the way the system should be: You pay back money that you borrowed with some interest included. But a growing vocal constituency has emerged to challenge that idea. They argue the current system is different from the one that benefited previous generations of students.
Contributed / Alan Collinge
“This is a bad lending system,” said Alan Collinge, founder of studentloanjustice.org, a Wisconsin-based organization that views the current system as “predatory.”
“For people who never had student loans or have repaid their student loans years or decades past, they just don’t know,” Collinge said. “They don’t understand that things have changed. And the lending system has been weaponized.”
Collinge says there are glaring examples in Minnesota of how bad the system has gotten: People who have fallen further and further behind on the payments, those who have paid $50,000 to $70,000 on a $25,000 loan, yet still owe $100,000.
“We’re not talking about people being deadbeats, we’re talking about people being fleeced,” he said.
Collinge laughed derisively when asked about President Biden’s announcement last week that an additional 125,000 Americans have been approved for $9 billion in debt relief.
Collinge called it a drop in the bucket. Since Biden declared the $9 billion loan forgiveness plan, $10 billion in interest has accrued to the federal student loan portfolio since the renewal of student payments started up this month.
“I’m very glad for those few people who are actually seeing their loans canceled, but it’s a tiny fraction of how the loan portfolio is growing,” he said.
Collinge says one of the goals of his organization, which was founded in 2005, is to allow borrowers to access bankruptcy court. Otherwise, the default rate, which he said was already “astronomical,” will continue to grow.
Bankruptcy rights once existed for student loan borrowers, and returning them would put student loans on the same par that exists for all other loans.
“We think as a result of us getting the leverage of bankruptcy back, they’re going to have to actually implement some very strong good faith changes,” Collinge said, including ensuring that people make it through income-driven repayment plans. “We think inevitably there will be some sort of loan cancellation.”
There are a number of options available to borrowers who are struggling to make their student loan payments:
- One option is to apply for the
new federal SAVE Plan,
which is an income-driven repayment plan. It calculates monthly loan payments based on income and family size. As of early September, about 74,000 Minnesotans had applied for the SAVE Plan. You can enroll on the U.S. Department of Education website.
- Another option is to
apply for a deferment or forbearance.
These are temporary measures that can help borrowers who are unable to make their loan payments.
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